+0.0030(+0.4654%)

-0.0007(-0.0611%)

+61.98(+0.77%)

The Australian and New Zealand Dollar finished higher on Wednesday. Most of the price action was related to position-adjustments due to short-term oversold technical conditions and ahead of Friday’s U.S. Non-Farm Payrolls report.

The AUD/USD settled at .7862, up 0.0027 or +0.35% and the NZD/USD ended the session at .7166, up 0.0008 or +0.11%.

Daily AUDUSD

There was limited news out of Australia and New Zealand. Most investors have been focusing on the fundamentals out of the U.S. lately because of the neutral stance adopted by the Reserve Bank of Australia and the Reserve Bank of New Zealand. Both are not expected to raise interest rates until next year.

Investors have been paying particular attention to the interest rate differential between U.S. Government Bonds and Australian and New Zealand Government Bonds. The tightening of the spread has made the U.S. Dollar a more attractive investment.

U.S. Treasury yields have been rising recently because of higher expectations of a Fed rate hike in December and a rapidly improving economy.

Daily NZDUSD

On Wednesday, the AUD/USD and NZD/USD weakened as investors positioned themselves ahead of Friday’s U.S. Non-Farm Payrolls report, while reacting to fresh economic data and a speech later in the session by Fed Chair Janet Yellen.

In U.S. economic news, according to ADP, U.S. private employers added 135,000 jobs in September, exceeding economists’ expectations even as the hurricanes “significantly impacted smaller retailers.” Traders were looking for a gain of 131,000. Last month’s report was revised down to 228,000.

The ISM Non-Manufacturing Index rose to its highest level since August 2005 in September and the prices paid index reached its highest level since February 2012. The ISM Services Index came in at 59.8, beating the estimate of 55.5.

Late in the session, Fed Chair Janet Yellen did not comment on the economy or monetary policy in prepared remarks at a community banking conference on Wednesday.

At the end of the session, data showed that interest rate futures traders were pricing in an 83 percent likelihood of a December rate increase, up from 78 percent on Tuesday, according to the CME Group’s FedWatch Tool.

Forecast

The recent price action indicates that the direction of the AUD/USD will be determined by trader reaction to the major technical retracement zone at .7847 to .7782. The key area for the NZD/USD is .7187 to .7100.

The Forex pairs are likely to remain under pressure over the near-term as long as the chances of a Fed rate hike continue to increase.

There were no reports from New Zealand on Thursday. In Australia, Retail Sales came in at -0.6%, below the forecast of 0.3%. This led to some light selling. The Australian Trade Balance came in better than expected at 0.99 billion.

On Thursday, investors will get the opportunity to react to the Challenger Job Cuts report, weekly Unemployment Claims and Factor Orders.

FOMC Members Jerome Powell and Patrick Harker are scheduled to speak.

In June, Philadelphia Federal Reserve Bank President Patrick Harker said that the U.S. central bank remains on track to meet its inflation goal and reiterated his support for a further two interest rate increases this year. This likely means he is going to deliver a hawkish speech which will be bearish for the Australian and New Zealand Dollars.

Powell was recently interviewed by President Trump to replace Fed Chair Yellen. Experts say he would not be a large step away from a Yellen-led Fed and would thus represent policy continuity for markets.